futures trading

Here are the three major types of futures trading strategies that the professionals use – trendline trading, cycle and seasonal trading.

Trendline Trading

What does trend line trading? Simply put, you’re looking to trade with the trend. Know the major market trends and ignore the ‘noise’ of the daily fluctuations. Markets tend to move in the direction of the trend over time, so trying to trade against the trend will be almost suicidal. Place stop loss below the trend line, and taking profits when the market is approaching the resistance line.

Cycle Trading

To trade cycles effectively, you must first find a market with reliable cycles. Reliable cycles of stock index futures contain 20-23 week cycles and a 14 day cycle. As for grain and livestock markets, the 9-11 month cycle could be a good guide, while for silver and gold markets, 28-day cycle. Interest rate futures follows a roughly 32-day cycle.

Avoid markets which are highly correlated, as this would put you at even greater risk than necessary, both markets would tend to move in the same direction. If your prediction is wrong, the losses you take would be on both fronts. Markets tend to follow similar basic cycles must be avoided.

Seasonal Trading

Seasonal trade can be one of the most successful trading methods. While other trading practices may have a strong theoretical backing, they have little empirical evidence of success. In contrast, the seasonal trading method has almost no theory to support it, but a tendency to perform the best empirically. This method assumes that certain markets have a tendency to peak or plumet at certain months of the year. This is especially true in the commodity markets, where prices can fluctuate with the seasons.

However, seasonal price trending is able to generate success in up to 80 percent in some markets. There are three main types of price trends: Seasonals in cash prices, futures prices, and futures spreads. Seasonal in cash prices tend to operate on a month-to-month basis. Seasonal in futures prices tend to operate on a week-to-week or a day-to-day basis because of the nature of futures, new futures are generated as the previous ends, and different contract months will reflect the different fundamentals . Seasonal in Futures Spreads primarily reflects the relationship between two different but related markets or between two different contract months in the same commodity.

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